Plenty of economists are critical of the apparent irrationality of financial bubbles, which have occurred throughout the history of capitalism. That they recur despite the efforts of governments to regulate the markets and prevent their worst excesses suggests that, at least to some degree, they are inevitable.
Alan Greenspan, former chair of the Federal Reserve, famously termed the dot-com bubble in the 1990s a bout of “irrational exuberance”.
In an interesting and iconoclastic piece written back in 2004, John Eatwell of Cambridge University considered the possibility of what he termed “useful bubbles”. In his own words, he was attempting to “row against [a] powerful tide of condemnation”, but was defining “useful in a very limited way – that is, as producing some positive consequences”, despite the potential for panics and crashes. Continue reading →
Last year the UK government published its industrial strategy, which, broadly speaking, aims to improve the country’s economic performance, from productivity and wage growth to job creation and regional imbalances.
This strategy, which seems to consciously avoid the more traditional term, ‘industrial policy’, is welcome. But does it go far enough, and what of importance is missing from the strategy?
There are some significant blind spots in the new strategy. One of the most glaring is the neglect of macroeconomics and the level of the exchange rate. Another is, remarkably, the neglect of the manufacturing sector itself, and a necessary focus on reindustrialisation. Continue reading →
I have been doing some reading on economic development in Africa recently. The continent, if it is even possible to lump its many diverse nations together when discussing development, which is probably unwise, gets some bad press. But as development economist Ha-Joon Chang has said in his bestselling book, ‘Africa is not destined for underdevelopment‘.
That is refreshingly optimistic, and I humbly concur. Having said that, Chang thinks it is all about policies, but for me this is only part of the story. Why do bad policies persist? This is what we need to study. Poor nations whose people want things to improve via economic and social development need pragmatic and effective governments who can implement policies appropriate to their particular national contexts. These will vary from country to country, and over time.
Below I will share some of the ideas I have gathered which mainly draw on the work of political economists who have studied development processes across the African continent. Continue reading →
Keynesian economics emphasises the primacy of aggregate demand or expenditure in driving the growth of output and employment. More mainstream neoclassical Keynesians, and the New Keynesians, tend to argue that inadequate demand is a short run phenomenon. The more radical post-Keynesians argue that it can be a problem in the long run too.
To varying degrees, these economists make the case for demand management via some combination of monetary, fiscal and exchange rate policy. The more radically minded have also long argued for incomes policies to manage wage and price inflation, and reform to the international monetary system in order to allow national governments the space to manage demand and promote full employment while preventing excessive and destabilising current account imbalances.
While Keynesian economics focuses on demand and, traditionally, macroeconomics, industrial policy aims to impact more on the supply-side of the economy and draws on microeconomics. Continue reading →
More on industrial policy, this time from Carol Newman of Trinity College, Dublin. She outlines some key findings on industrial development from some of the more successful late developers and looks ahead to what is necessary to encourage development in Sub-Saharan Africa. Interesting stuff. For such a short video, she manages to pack in quite a lot of information.
Here is a rather lively video introduction to South Korean development from VisualPolitik, describing how in the post-war period the political economy of the country encouraged rapid growth and transformation for many years. This enabled it to significantly catch up with the rich world’s economies. In the history of economic development, Korea has been a success story.
The video is partly wrong on the nature of trade policy: companies were encouraged to become successful exporters but there was at least temporary protection from selected imports at certain times.
It leaves out aspects such as the legacy of Japanese colonialism which bequeathed a particular political and social structure to the country. This certainly affected the path of development.
It also fails to mention the enlightened self-interest of the US, which provided aid and military support, as well as access to its markets, during the years of rapid growth. After all, they wanted to prevent the spread of communism and help create a successful capitalist South Korea. Continue reading →